Is this the end of expensive office space in New York??

David Goldsmith

All Powerful Moderator
Staff member
With an estimated 20% residential vacancy rate in Manhattan currently, I don't see how more residential conversions is a solution. And it would require billions in investment only to collect less $/sf than the office tenants who left.

Midtown Is Reeling. Should Its Offices Become Apartments?​

The pandemic has created a crisis in New York City’s commercial real estate industry. Some leaders think it’s time to reimagine the city’s business districts

Nearly 14 percent of office space in Midtown Manhattan is vacant, the highest rate in 11 years.

The pandemic is pummeling New York City’s commercial real estate industry, one of its main economic engines, threatening the future of the nation’s largest business districts as well as the city’s finances.
The damage caused by the emptying of office towers and the permanent closure of many stores is far more significant than many experts had predicted early in the crisis.
The powerful real estate industry is so concerned that the shifts in workplace culture caused by the outbreak will become long-lasting that it is promoting a striking proposal: to turn more than one million square feet of Manhattan office space into housing.

Nearly 14 percent of office space in Midtown Manhattan is vacant, the highest rate since 2009. On Madison Avenue in Midtown, one of the most affluent retail stretches in the country, more than a third of all storefronts are empty, double the rate from five years ago.

The collapse of commercial real estate is another major burden for New York, since the industry provides a significant portion of the city’s tax revenues.
Filings to erect new buildings in the city, a key indicator of industry confidence, have dropped 22 percent this year to 1,187, the lowest number since 2010.

As of late October, only 10 percent of Manhattan’s one million office workers were reporting to the office, according to a survey by the Partnership for New York City, an influential business group.
And this already bleak picture could even get worse, real estate experts and industry executives said.

“It would probably be fair to say we haven’t hit bottom yet,” said James Whelan, president of the Real Estate Board of New York.
It does not appear that the major commercial landlords in the city are facing financial collapse, but the stocks of the ones that are publicly traded are down sharply since March.
The fallout from the crisis can be seen in a rising tide of litigation between landlords and tenants, even at some of New York’s most gilded addresses.
At the Shops at Columbus Circle, a luxury mall overlooking Central Park, the developer has accused a group of high-end retailers, including Michael Kors and Hugo Boss, of skipping out on more than $7 million in rent and fees. On Fifth Avenue, the Italian designer Valentino has sued its landlord to free itself from a lease of nearly $1.6 million per month.

New York City’s finances — money to pick up trash, repair parks and police streets — rely heavily on the health of the industry.
Property taxes represent the largest source of city revenue, and commercial property accounts for the largest share of that overall levy, 41 percent, according to Thomas P. DiNapoli, the state comptroller.
Commercial property sales have plummeted by nearly 50 percent through October, according to Rahul Jain, a deputy state comptroller.
A weakened commercial real estate market will make it “much harder for businesses and the economy to get back to normal,” Mr. DiNapoli said.
The lack of workers is having a ripple effect on rents. Across Manhattan’s retail corridors, asking commercial rents have dropped nearly 13 percent from last year, according to CBRE, a commercial real estate firm. The steepest declines are in areas dominated by office buildings, including Times Square and Grand Central Terminal, and shopping destinations like SoHo.

Commercial real estate is a vital source of the city’s revenue, accounting for 41 percent of its property taxes. But many buildings are

The industry’s troubles, initially sparked by the exodus of office workers during the state’s stay-at-home orders in the spring, have persisted as many commuters have settled into long-term or permanent remote-work arrangements. Tourists have also largely disappeared.

As a result, tensions are growing between the city’s powerful landlords and some of their equally powerful tenants. Property owners have accused blue-chip companies of using the pandemic to withhold rent they can afford, while tenants have portrayed landlords as greedy and unwilling to acknowledge economic reality.

“It’s not easy, but we need to make sacrifices, and landlords need to make sacrifices,” said Lawrence Berger, chairman of FanzzLids Holdings, which owns Lids, an athletic headwear store whose flagship shop is in Times Square.
The shop has been sued over more than $511,000 in unpaid rent and charges at four other Manhattan stores that were closed for months at a time.
“The amazing thing to us is that in New York, they’re going after rent for times when we weren’t allowed to be open,” Mr. Berger said. “We have worked out deals with our landlords across the country except in New York City.”
Landlords like Related, which owns the Shops at Columbus Circle and has sued five of its tenants there, say they have their own financial obligations and tenants that can afford rent should pay.

The litigation does not capture the behind-the-scenes, high-stakes negotiations that have led to resolutions without resorting to court, said William H. Mack, a commercial lawyer at the firm Davidoff Hutcher & Citron in New York.
Mr. Mack has been hired by Hugo Boss in its effort to reduce or void its lease at Columbus Circle. “This is 80 to 90 percent of what I’ve been doing since March and April,” he said.
At the Real Estate Board of New York, whose members include nearly every major landlord and developer in New York, the prospect of systemic changes in work habits looms large.

“Anyone that thinks the way that people used the workplace in the past isn’t going to change postpandemic is fooling themselves,” said Scott Rechler, chair of the Regional Plan Association and the chief executive of RXR Realty, which controls 26 million square feet of city office space.

Commercial rents in many of Manhattan’s usually busiest districts, like Times Square, have plunged nearly 13 percent since last year.
Employers have discovered that productivity does not necessarily suffer in the absence of shared work space and that smaller office footprints and more lenient work-from-home policies might make lasting economic sense.
As a result, the landlord group is proposing that the city and state allow developers to more easily convert Manhattan and borough offices into residences.

Roughly 140 million of Manhattan’s 400 million square feet of office space is considered to be of average quality or is in older and less luxurious buildings, according to Cushman and Wakefield, a real estate brokerage. The real estate board puts the citywide supply of those buildings at roughly 210 million square feet.


The real estate group estimates that converting even just 10 percent of that office space to residential would create 14,000 apartments citywide, including as many as 10,000 in Manhattan — a significant amount in a city routinely short of enough housing, especially affordable homes.
Changes to zoning rules needed for any conversions would require that some portion of new housing be set aside as affordable, the board said.
Mark A. Willis, a senior policy fellow at New York University’s Furman Center for Real Estate and Urban Policy, said that before the pandemic, job growth was outpacing housing growth in the city, causing demand to far outstrip supply and exacerbating the city’s persistent housing shortage.
“Facilitating the reuse of buildings to adapt to changes in the economy is, to me, a very smart idea,” Mr. Willis said.
Some tenants are using the current downturn — and the resulting lower prices per square foot — to trade up for nicer office space, the board said. That is a boon for higher-end office landlords, but could bode ill for landlords of lower-rated buildings.
Converting office buildings to homes would not only provide a potential financial lifeline to landlords, but would also benefit retailers, the real estate board argues, because the presence of office users during the day and apartment dwellers at night would increase foot traffic.
There is no reason, they argue, for Midtown to retain its status as New York’s last predominantly office district, bustling during the day but quieter at night.
They cite the success of Lower Manhattan, which in recent decades has turned from an almost exclusively office district into a vibrant residential neighborhood.

The proposal would require changes to zoning and density rules that would have to be approved by the City Council and the State Legislature and embraced by the mayor and governor.
Gov. Andrew M. Cuomo’s office would say only that he would review the idea.
A spokesman for Mayor Bill de Blasio, who is term-limited and about to begin his last year in office, welcomed the housing proposal.
“City Hall is always looking for sensible, equitable ways to deliver more housing,” said the spokesman, Bill Neidhardt.
Still, converting office space to apartments is not easy. Landlords would still need to wait for buildings to empty, which can take years.

The landlord group says the city and state should help expedite conversions by lifting zoning restrictions that require manufacturing in areas like the garment district, changing density requirements that bar apartments and creating new tax breaks for landlords.
Whether city and state elected officials will green-light a measure that would help real estate developers when so many tenants are struggling is an open question.
Several candidates vying to succeed Mr. de Blasio have vowed to refuse campaign donations from real estate developers.
Nor is it clear how many landlords would actually take advantage of the proposed changes.
Jeff Gural, who controls a large portfolio of aging buildings in Manhattan, said he would rather remain in his current line of work.

“We don’t have that much vacant space to begin with,” Mr. Gural said. “And I believe there will be a demand for the kind of space that we have.”
Another possible source for expanding housing would be to convert hotels, many of which have closed as the industry has been decimated by a plunge in tourism and business travel.
That idea is gaining traction among some developers and affordable housing advocates. One group that is trying to shape the 2021 mayoral debate, United for Housing, will argue in an upcoming report that the next mayor should prioritize converting hotels into permanent supportive and affordable housing.
As for the real estate board’s proposal, some housing advocates say the pandemic is an opportunity to come up with creative way to ease the city’s housing crisis.
“We need a comprehensive plan for how to bring on new housing resources, and the idea of converting office buildings to residential I think has a lot of upsides,” said Brenda Rosen, the president and chief executive of Breaking Ground, which describes itself as the state’s largest provider of supportive housing.

 

David Goldsmith

All Powerful Moderator
Staff member
Post Mortem: How New York Brokers Hustled Their Way Through 2020
The coronavirus pandemic led to leasing activity plummeting around Manhattan and hundreds of retailers closing up shop.
After a 2020 filled with thousands of people sick and dying, job losses, beloved businesses closing, holidays spent alone, inability to see friends outside of a screen, and feeling like you’re reenacting the movie “Groundhog Day” in your home every day, 2021 is on the horizon with the hope of a vaccine.
The real estate market has faced a brutal 2020, with leasing and investment activity plummeting in New York, while retailers filed for bankruptcy and closed up shop by the dozens.
From January to November, Manhattan saw only 11.87 million square feet of office leasing activity, a 58 percent decrease from the 28.53 million square feet signed during the same time last year, according to CBRE. November’s 480,000 square feet, in fact, was a record monthly low for Manhattan and the third time the record was broken this year.

Many of the deals this year have been renewals — including the second largest of the year, NYU Langone Medical Center’s 633,000-square-foot renewal at One Park Avenue — as most companies took a wait-and-see approach in 2020.
“Unless you have to do something, why do something today?” said Michael Mathias, an executive managing director at Savills. “A lot of people are making the best use of their space and are going on with their lives.”
But, even with the bleak office leasing numbers, there have been some bright spots in the market. Facebook’s long-rumored, 730,000-square-foot deal finally closed in the middle of the pandemic in August, clinching the title of the largest office deal of the year.
It wasn’t just Facebook offering hope to Manhattan. TikTok provided some much needed good news at the height of the pandemic when it took 232,000 square feet at the Durst Organization’s One Five One in June; and Apple took another 116,000 square feet at 11 Penn Plaza in November, after the tech giant had already signed a lease for 220,000 square feet in February.

“The tech sector continues to grow during the pandemic and commit to space,” said Bruce Mosler, chairman of global brokerage for Cushman & Wakefield. “While office occupancy is low, they’re clearly making a statement about where they think people will want to be.”
And tech is one of the major reasons brokers were able to get any deals signed this year at all.
After about a month of trying to figure out how to best market buildings to prospective tenants during the pandemic, when in-person tours were all but impossible, CBRE’s Paul Amrich visited the properties himself.
“I woke up one morning and said, ‘Why don’t I just go through and walk all our buildings?’” Amrich said. “To relook at how vacancies feel and how we’re dealing with COVID.”
That’s when Amrich got an idea: Why not invite other brokers to join him virtually? So, Amrich set up a live Zoom tour of 1245 Broadway in July, where he spent 30 minutes showcasing the building and showing renderings of parts under construction. Nearly 200 people tuned in.

“Our phone blew up afterward,” Amrich said. “It almost created this connectivity to the brokerage community that everybody very much missed.”
Brokers have also relied on Zoom calls to hammer out leases. Most agreed that the pace of the video calls, along with not having enough time to switch gears between them, were draining. Though JLL’s Peter Riguardi did find some pluses to only being visible on a webcam.
“You’re able to be on a video call with the other side of the deal, and at the same time, you can be texting your colleagues ‘don’t say this, don’t say that,’” said Riguardi, whose deals this year include BNP Paribas’ 323,000-square-foot lease at 787 Seventh Avenue and Apple’s deals at 11 Penn Plaza. “We had a lot of success and it worked, but it does in no way substitute for face-to-face.”
Brokerages rapidly expanded their tech tools in general, as well as the data they provide to clients during the pandemic. This quick evolution turned out to be a silver line, executives say.
“The communication and technology level that we have with our clients today is tenfold to what it was,” Mosler said. “It caused us to up our game in terms of what our best practices are.”

Mosler said one of the things Cushman & Wakefield has focused on during the pandemic is developing plans for their clients’ workspace post-COVID-19 and giving them plenty of data on trends. That included a study that found that most millennial and Gen-Z workers crave going back to the office. It also famously included a May analysis for the so-called “6-foot office,” designed to keep workers safely socially distanced.
“This has been a moment to show your clients that you’re there for them and that you’re present,” Mosler said. “You must provide them with information on every level. It’s also an opportunity to be a leader and help them understand what the workplace of the future can look like.”
Most brokers expect office workers to flock back next year, especially once a vaccine is rolled out. Still, they say there’s plenty of ground to make up for after 2020.
Aside from decreases in leasing activity and the number of new deals, Manhattan has started to see a dramatic increase in sublease space. It stood at more than 16 million square feet in November, and Mosler expects the number to hit 18 million square feet by year-end. This spike in available sublease space has driven down rents, even in prime addresses.
“I anticipate that, the first half of next year, the people will reenter the market,” Mosler said. “And the first people in the market will look to take advantage of some of those economically beneficial leases.”

Along with the increase in sublease space, Manhattan’s availability rate hit a 16-year high in October and was 13.5 percent by early December, according to Colliers International.
“Just because we’re going to have a vaccine and just because people are going to come back to work, it’s not going to mean that the economy in the real estate business is going to turn around at the same pace,” Riguardi said. “We have a few years of inventory that we’re going to have to burn through.”
The retail side hasn’t looked much better this year and already has been working through a punishing few years dubbed a “retail apocalypse.” Leasing velocity decreased in Manhattan for the fifth quarter in a row in the third quarter of this year and dropped below 3 million square feet for the first time since 2017, according to CBRE.
Dozens of iconic brands have closed or filed for bankruptcy — including JCPenney, Brooks Brothers and J.Crew — while others didn’t come out of 2020 alive.
Department store chain Century 21, which was founded in Bay Ridge, Brooklyn, in the 1960s, announced in September that it would permanently shutter its 13 locations, while Pier 1 Imports and Lord & Taylor also went out of business in May and August, respectively.

Neiman Marcus’ 188,000-square-foot Hudson Yards outpost closed in July, a little more than a year after it opened, with developer Related Companies now marketing the space to office tenants instead.
The wave of closures and bankruptcies could worsen if a second set of lockdowns hit the city because of the rising number of COVID-19 cases.
“Most of them are just hanging on for dear life,” said Peter Braus, managing principal of Lee & Associates NYC. “If there’s another shutdown and there’s no aid package for small retailers, then that will be the last straw for a lot of people.”
However, the few retailers signing deals during this time have been greeted with some significant deals.
“If you’re smart, and you have the resources to do so, you’re going to go out and try to snap up spaces that, otherwise, you wouldn’t be able to get for these types of deals,” Braus said. “Some of these deals are not anything they’re going to see again in their lifetime.”

Braus said he has seen spaces offer rents at half of what they were pre-COVID, as well as retail tenants moving a few blocks away in search of more favorable terms, significant tenant improvement packages, and the addition of a clause in leases helping tenants in case of another pandemic.
And, unlike office tenants who have been committing to shorter-term leases in order to buy time to figure out the pandemic’s impact on their business, retailers have tended to take longer leases than before to lock in deals. Braus, for instance, said he recently signed a 20-year lease and a 22-year lease.
“If they’re going to take space, they want to lock in a great lease for a long period of time and not have to worry about what happens in five years,” Braus said. “Of course, that’s not what the owners want, but they’re not really driving the bus right now.”
As grim as 2020 looked, brokers are hopeful next year will be better, especially with a COVID-19 vaccine already being administered.
“A lot of people are gearing up for 2021,” Savills’ Mathias said. “There are a fair number of companies that have just been sitting on the sidelines.”

Cushman & Wakefield’s Mosler said that he expects there to be “pent-up demand” next year, as companies played a waiting game in 2020.
There will also be a more noticeable “flight to quality” in the office leasing market, since tenants will have to provide a better workspace to get workers to come back, Mathias said.
“The office is going to need to provide something additive to the at-home work experience,” he said. “There has to be some draw for people to come there. It can’t just be, ‘Hey, we have snacks.’”
CBRE’s Amrich is gearing up to have a strong first quarter and has started to see long-term lease commitments return for clients.
“The confidence level from the tenant community is back,” he said. “If someone was going to leave the city, they’ve left already.”

And the pandemic has brought some positives to the brokerage community with the wider embrace of technology. Riguardi guessed that half of his traveling for work could be replaced by a quick Zoom call in the future and virtual tours could help clients whittle down a long list of potential spaces to just a handful. However, he said there’s no replacement for an in-person walkthrough of an office.
“The video tours of the space are definitely effective, but I would never expect a client to make a decision based on that,” Riguardi said. “There are things that you don’t see on camera. The camera is only showing everything in its most positive light.”
Despite his success with virtual events, Amrich agreed and doesn’t expect to continue them in the future. But, one good thing the embrace of technology did give him was more time with his loved ones.
“This caused you to kind of get off the treadmill, and you got this silver lining of amazing time with [your] family and children,” Amrich said. “If there was a way that you could work your schedule, where you could get a little more family time through the use of technology, I think that’s a good result of this.”
 

adam555

New member
The reason for the end office place is that in covid mostly people search online things and bring them at their doorstep that's why big giant thinks that they can earn more profit on online market places like Amazon, eBay, and Poshmark by using automated tools that also save costs.
 

David Goldsmith

All Powerful Moderator
Staff member

A long road ahead for office landlords​

The office sector’s recovery won’t begin until after next year, industry experts say

Manhattan’s Paramount Group received an unsolicited takeover bid early last month for about two-thirds of what the company was worth prior to Covid.
Just a few weeks later, the real estate investment trust’s board unanimously rejected the offer from activist investor Bow Street, noting that its offer was “inadequate and significantly undervalues” the office landlord run by Albert Behler.

The hedge fund’s bid, however, was in line with Paramount’s stock price, which plunged at the onset of the pandemic and has hovered at just under $10 a share since. And the REIT, which has a market cap of about $2 billion, may still be on the table for a higher offer.
“Our board and management team remain open-minded,” Behler wrote in a letter to Bow Street’s managing partners.

It’s a tense reality for the pandemic-battered landlord whose trophy office buildings in Manhattan and San Francisco remain mostly empty as the vast majority of employees continue to work remotely.
Meanwhile, Paramount isn’t the only office landlord in hot water.
Vornado Realty Trust recently unveiled plans to reduce compensation and shed 70 jobs to lower its annual overhead costs by more than $35 million. Empire State Realty Trust, likewise, announced plans to lay off six employees and furlough another 156 as part of the firm’s cost-cutting measures, after reporting a net loss for the second consecutive quarter.

“We need to get through a very difficult point now,” Anthony Malkin, Empire State Realty’s chairman and CEO, said in an interview. “I’m highly confident. I’m also a realist. … We probably won’t see the bottom until the first quarter of 2022.”
Paramount declined to comment for this story. Vornado did not respond to requests for comment.

The availability of office space in the biggest markets around the country hit new highs in recent months, as a growing number of tenants look to weather the pandemic and economic fallout by subleasing space. At the same time, struggling hotels and retail assets are being converted into new offices, adding to a potential oversupply in major cities like New York, Chicago, Los Angeles and San Francisco.

Manhattan’s office availability rate was at more than 13 percent last month, the highest level since 2003, with Midtown and Midtown South setting historic records of 14.4 percent and 12.8 percent respectively, according to Colliers International.
“It is significant to acknowledge it,” said Franklin Wallach, Colliers’ senior managing director of New York research. “But of course, we are in very unique times right now with Covid-19.”

The availability of office space in Chicago’s central business district, meanwhile, rose to a rate of more than 22 percent at the end of the third quarter, according to CBRE. In Los Angeles County, the availability rate was at roughly 21 percent as of early December, a recent report from Avison Young found.
And market conditions could get worse before they improve.

Many workers who finally returned to their offices this fall have retreated again, facing a resurgence of Covid infection rates. Industry experts say the latest vaccine news offers a dim light at the end of the tunnel, but a long road to recovery is still ahead.

The WFH reckoning
In an effort to lead by example, SL Green Realty CEO Marc Holliday, who lives in Scarsdale, has been commuting by train since March.
During SL Green’s third quarter earnings call, Holliday lamented the low physical occupancy rate of his firm’s office portfolio.
“We’re still … right around the city average of probably 15 percent to 20 percent back to office work,” he said. “That means 80 percent, 85 percent of the people that work in office buildings are still home, and that’s frustrating.”

SL Green declined to comment.
During recent earnings calls, executives of other office landlords acknowledged that while most tenants have been keeping up with rent payments, the majority have also kept their workers remote. Building owners maintain that they’re creating safe office environments, in an effort to lure back workers, but the recent surge of Covid cases is once again sending people home.

And one contender in New York City’s 2021 mayoral race has added to the list of grievances. “We owe it to our kids to do everything we can to keep schools safe and open,” the city’s comptroller, Scott Stringer, tweeted in mid-November. “Shut down office buildings.”
Nearly nine months into the pandemic, the physical occupancy rate of offices in the country’s top 10 metro markets remains at an average of about 25 percent, according to Kastle Systems, which aggregates data from its swipe card door access system.

Countless office buildings around the U.S. have remained almost completely deserted since the beginning of the pandemic, and the return rates among office workers in San Francisco, New York and Chicago, were among the lowest as of Dec. 2, at 12.8 percent, 14.3 percent and 16.6 percent, respectively. Los Angeles fared better than average at 31.7 percent.

For landlords, physical occupancy matters, said Alex Goldfarb, a senior REIT analyst at Piper Sandler. Similar to Malkin, he predicted that office leasing in major markets like New York will begin to normalize in 2022.
“You really need all the employees to come back to work,” Goldfarb said. “Then employers feel better about how they’re going to handle things and they’ll be able to make growth decisions on leasing.”

Peter Brindley, Paramount’s executive vice president of leasing, has argued the same point.
“One of the things that we subscribe to entirely is that physical occupancy will generate new leasing activity,” he said during the REIT’s third quarter earnings call in late October.
andemic pressures

Compared to hospitality and retail, the office sector has appeared more insulated from the pandemic.
But when dealing with office tenants that are nearing the end of their leases, landlords have had to maneuver carefully. The number of short-term lease extensions has rapidly increased during the pandemic as both property owners and tenants avoid making decisions that could prove to be too concrete in the year ahead, according to industry sources.

At the same time, space available for sublease continues to flood major cities around the country.
As of Nov. 30, Manhattan’s available sublease space was more than 24 percent of the market’s total availability, at about 17.3 million square feet, signaling a “glut” of inventory on the near horizon, Colliers’ Wallach noted.
In Chicago’s central business district, the amount of sublease space on the market has surpassed 5.3 million square feet, the highest on record and about 15 percent of total availability, according to Cushman & Wakefield. And the amount of available sublease space in Los Angeles County in early December was 7.6 million square feet, about 17 percent of total availability, according to Avison Young. That’s also the highest on record, exceeding the 6.5 million square feet in sublease inventory in 2009.

Office landlords have faced a “lot of downward pressure” on pricing as they contend with the “enormous amount of subtlet office available,” said Manus Clancy, senior managing director of the financial data firm Trepp.
In turn, the amount of free months of rent — typically offered by landlords at the beginning of a new lease — has spiked by 30 percent nationwide since the pandemic hit, according to a recent report co-authored by Trepp and CompStak.

Some building owners have also boosted their tenant improvement allowances, said Jonathan Larsen, a commercial broker with Avison Young based in Los Angeles.
Office landlords would prefer to give out more concessions as long as they can maintain their asking face rent because “they are focused on preserving the value of their property,” said Artree Maharajh, Avison Young’s research manager for Los Angeles County.

Local landlords are holding out hope that the market will begin to recover once enough people get vaccinated, Maharajh said. “They’re not trying to do the deals any lower than they need to because, at some point, they’re going to need to sell the building,” he said.
But the far-reaching impacts of Covid could make a full recovery tricky, as tech firms continue to lead the charge on remote working as a way to cut costs and give workers a greater sense of flexibility. Software giant Salesforce, for example, recently told analysts that it plans to consolidate and sublease some of its office space as more people work from home.

On top of that, some owners of struggling hospitality and retail properties are adding more supply to an already saturated market.
Major hotel chains like Marriott and Hilton and boutique brands like the Wythe Hotel in Brooklyn are now promoting their hotel rooms as makeshift offices. Meanwhile, a 377,000-square-foot retail space on Manhattan’s Far West Side has been marketed for office use since this summer. That includes 190,000 square feet formerly occupied by the Neiman Marcus department store at 20 Hudson Yards.

Facebook, which inked a lease for 1.5 million feet of space in the megadevelopment last year, was said to be interested in the space. But a spokesperson for Facebook told The Real Deal this month that it’s not considering the space.
Related Companies and Oxford Properties, the co-developers of Hudson Yards, did not respond to requests for comment.

Anthony-Malkin-quote.jpg

“You’ve seen almost 650,000 square feet of former retail or hotel space come back to the market as offices because this has affected so many other asset types,” said Colliers’ Wallach.
The issue, he added, is that it “puts more supply pressure” on Manhattan’s 526 million square feet of existing office space.
The conversion crunch
The Real Estate Board of New York — whose members include some of the largest office landlords — recently proposed that the city and state allow developers to more easily convert offices into apartments. Across the five boroughs, REBNY has identified 210 million square feet of office space that could be converted into apartments.
In past recessions, converting vacant offices into residential units successfully transformed Lower Manhattan into a lively mixed-use neighborhood.
But office-to-residential conversions seem unlikely in this downturn, argued Carl Weisbrod, who led the neighborhood’s redevelopment effort in the 1990s and again after 9/11 as the founding president of the Alliance for Downtown New York.
“I think what we’re going through here is more of a cyclical issue than a structural issue,” Weisbrod said.
He added that while some Manhattan office buildings (and hotels) may be ripe for redevelopment, necessary government incentives won’t be available as the city struggles to balance its pandemic-ravaged budget.
“The incentives, if they’re offered, should really be offered only for affordable housing,” Weisbrod said.
Concerns over a fiscal crisis are also mounting in Chicago.
Facing a $1.2 billion deficit in fiscal 2021, Mayor Lori Lightfoot proposed a $94 million property tax hike to balance her budget plan, which was narrowly approved late last month. At the same time, Cook County is going through a reassessment of its real estate values.
Commercial property owners have been sitting on the sidelines as the real impacts won’t be seen until the middle of next year, said Laura Dietzel, a senior real estate analyst with the accounting services firm RSM US.
“Certainly, the state and local tax picture is going to be very important,” for the office sector’s recovery, she said. “Not just in Chicago but on the national level.”
Roads to recovery
The general consensus throughout the commercial real estate industry is that once vaccines are widely distributed, the office sector will finally be on track to rebound.
Until then, however, the sector’s overall availability rate could further increase as more office space is likely to come on the market for subleasing, said Nicole LaRusso, CBRE’s director of research and analysis.
“Our expectation is that until tenants — occupiers — recall their workers to the office, we will not likely to see occupiers making commitments to take on more space,” she said. “And we don’t think they’re going to recall workers to the office until people feel that commuting and being in the office together is safe.”
As the downturn continues into next year, landlords will be required to adopt even more, said David Falk, Newmark’s president for the New York tri-state region.
“With all the tenants cutting back and shrinking, there will be adjustments to the economics, to the rents, and more free rent and more tenant improvement allowances,” he said. “Landlords will probably have to spend more money to entice tenants to move to their buildings.”
Industrious CEO Jamie Hodari, who has been partnering with building owners to create more flexible office space, said smart landlords are trying to take advantage of the “work from anywhere” trend.
On the tenant side, Jack McKinney Jr., a commercial broker with Cushman & Wakefield in Chicago, said employers “will be looking to ‘ammenitize’ in a way that encourages people to come back to the office.”
Whatever it takes, having employees return to the office is key for a business to grow, Empire State Realty’s Malkin argued.
“The fact that people have been able to accomplish certain tasks from home does not mean they’ve been able to start new businesses, acquire new customers — they’ve just been able to maintain,” he said.
“It’s very clear that people cannot build teams, [build work] culture, share ideas without being with each other.”
 

David Goldsmith

All Powerful Moderator
Staff member

Covid-19 vaccine won’t be immediate cure for office market​

Even with vaccine, workers may not return to offices before summer

It’s been a rough year for the office market — and it’s unlikely that the first half of next year will be much better.
Even though Covid-19 vaccines are being distributed across the country, public health and real estate experts believe that a return to the office likely will not happen until late spring or early summer, the Wall Street Journal reports.
Experts say that it will take months for the vaccine rollout to become effective and for employees to reach herd immunity, meaning remote work will continue in the next year and office rents will continue to drop.

The real estate firm CBRE projects that office rents could fall by as much as 8 percent in 2021.
In the meantime, landlords are dealing with mostly empty offices. An average of about 23 percent of workers in 10 cities had returned to the office the week of Dec. 16, according to Kastle Systems, which tracks access-card swipes. The highest rate since the pandemic was 27.4 percent in mid-October, Kastle said.

Some companies are planning their return to the office in light of the promising vaccine news. In New York, 25 new tenants per week were searching for office space in the first two weeks of December, up from 20 per week in November, according to the data firm VTS.
Many of these companies are considering leasing space from co-working operators such as WeWork and Industrious, according to the Journal.
 

John Walkup

Talking Manhattan on UrbanDigs.com
Price tells all. Get those office rents low enough and they will fill covid or not... When cell networks began cutting rates in the early 2000s it was nickel by dime so they all went down holding hands. Unfortunatley for many CRE landlords, the first one to the magic price wins, the rest will have to go lower.
 

David Goldsmith

All Powerful Moderator
Staff member

Are You Sure You Want to Go Back to the Office?​

The future of work is flexibility.

There’s a common refrain among people who’ve been marooned in their homes this year, trying to manage their jobs and their children’s distance learning, always fighting the losing battle against the dishes, the laundry, the dog hair, the grocery list. “I cannot wait to get back to the office,” they say.

But people don’t really want to get back to the office. They want to get out of their apartments, their houses, their parents’ houses. They want their children back in school, and also out of the house. They want to see people’s faces again, and have conversations with people who are closer than six feet from them. But that doesn’t mean that they actually want to be back in the office — at least not the way the office was before.
Many companies are preparing to bring employees back in the spring or summer, depending on how fast the vaccines roll out. Picture it: At first, the office will feel like the first day of school, senior year — everything’s familiar, and all your old comforts are there, and everyone’s thrilled to have the sort of proximity we’ve actively avoided for months.
But the old annoyances will arrive right on schedule. The commute will still be long; there will still be too many meetings and time-sucks; it’ll still feel like a mad rush to get out the door in the morning or get dinner on the table at night. The question will present itself: Why, again, do we insist on traveling to an office every day?

When I talked to dozens of analysts, H.R. experts, architects, consultants, real estate agents and office furniture designers, the consensus was clear: The future of office work is flexibility. At one end of that flexibility spectrum, there will be fully “distributed” companies like the software maker GitLab, with no headquarters and employees scattered across the world. At the other, there’ll be more old-fashioned organizations that demand face time in the office, but whose belief in the infeasibility of remote work has been permanently undercut.

And then there’s the vast, corporate in between. Headquarters aren’t going away, but more companies will embrace the hub-and-spoke model: smaller footprints in big, expensive cities, and smaller offices in places where employees want to (and can afford to) live. Some companies will keep their existing office space and allow people to claim staggered schedules that align with their preferences, avoid peak commuting times, and reduce overall capacity in the office.

Others will try what used to be known as “hoteling” or “hot desking,” in which multiple workers share a desk. Still others will offer stipends for employees to join the small, neighborhood-oriented working spaces that will proliferate as Americans get vaccinated.

People will be leaving their homes, having conversations, working with others — which is what they actually miss when they say they miss the office. They’ll just be doing it more on their terms than ever before.

There are problems, of course, with each of these scenarios. Let people do what they want and the pre-pandemic power dynamics of the office will simply reproduce themselves. No one, for example, should be allowed to go to the office every day — otherwise it’ll just become yet another way to prove yourself the better, more present worker. And the employees most likely to embrace the flexibility of working from home are the same people expected to perform the majority of labor in the home: women.

Remote work will have to be viewed as equally important as in-person work. In practice, that means rethinking what remote working actually looks like — that is, very little like what we’re doing now. We’re not just working from home, after all. We’re working from home during a pandemic.

We might have haphazardly arrived at workarounds, but there’s still so much more to develop, whether in terms of dedicated heads of remote work, or technology that actually makes hybrid in-person and remote meetings feel less awkward.

“I think the future is actually having to manage people,” said Adam Segal, the chief executive of Cove, which helps companies organize shared desk and conference space. “The default setting right now is that you just see people in the office, and that’s how you manage them. But now people actually have to learn how to communicate about the work that you’re doing, about productivity, about expectations.”

The companies that are creating the tech, the flexible office space, the modular, high-turnover conference rooms — they’re ready. But everyone else still seems to be in maintenance mode.

“I haven’t heard from anybody, anybody, who’s thinking about how we’re going to make ‘Working Parenting 2.0’ or ‘Flexibility 2.0’ work,” Daisy Dowling, who runs a consulting and coaching business for working parents, told me. “People are too assaulted right now, and they haven’t quite gotten to the planning yet. But that’s kind of scary, because when we do get there, they won’t have the structures in place.”

If the structures aren’t in place, piecemeal hybrid schedules will fail, and we’ll end up right back where we were before.

For employees’ relationship to work to meaningfully change, companies need to start thinking about it now. What has previously been subtext will have to become text. If your department all comes in on Thursdays, what do you do with that valuable, weekly time? Which meetings are essential, which could be silent, or a simple progress update?

If you take the train into the city only once a week, that day becomes useful: a time specifically for collaboration and ideas, instead of just another day spent endlessly toggling between emails and meetings, doing everything and getting nothing done. Instead of resenting your exhausting slog into the city, it might start to feel actually productive.

“Right now, we’re in an emergency, and the red lights are flashing,” said Michael Colacino, the president of the office real estate company SquareFoot. “But when the lights are off, the question will still be: ‘How do I get the engineer I want, or the web designer I want? How do I induce them to come here? I can pay them more money, which is expensive. Or I can give them more space, more feeling of safety, more amenities.’”

All of these companies catering to the highly skilled work force told me the same thing: Post-Covid flexibility is going to make the office even better. Workers are going to have a higher quality of life, more time with their kids, more connection to their communities. They’ll be able to live where they want to live, stop paying exorbitant rent. They might even figure out how to work less, simply by being able to concentrate more. This is the wild, blissful, utopian flexible future.

But this is also a huge shift in the understanding of corporate flexibility — an ethos that was embraced in the 1980s and ’90s. Back then, flexibility was for hirers, not employees. Corporations wanted a work force that could be expanded and reduced quickly, that wasn’t yoked to the company through long-term contracts, faint ideas of loyalty, or union demands. In short, they wanted disposable workers instead of the long-term (or even lifer) employee who had historically weighed down the bottom line.

The “flexible” ethos was sold to employees with the language of choice — it’s liberating to be a freelancer or a contractor — even though it was often “freedom” to work more, for less pay, with far less stability. This made shareholders happy but left companies with a burned-out, less productive, and ever more alienated work force.

This was a problem pre-pandemic, and it’s a bigger problem now. Which brings us to the bleak heart of the issue: A vast majority of people who were in “good” jobs — stable, well paid, with benefits — before the pandemic have managed to maintain those good jobs. Doing the job might have become more difficult, but the job itself has largely remained steady.

These employees are the ones whose bosses are going to be seeking these solutions, who are thinking of hiring heads of remote work, who are looking to even further “amenitize” their spaces, to figure out new strategies to make work-life balance real.

For the rich, and for the office worker whose skills are in demand, the Covid-19 recession has been over for months. With that sort of economic stability brings the ability to innovate and think about what “flexible” could mean moving forward — including, hopefully, new ways of thinking about the centrality of work in our lives. When you’re not compelled to be in the office from 9 to 5, “flexibility means you actually schedule your day around your life,” as Mr. Segel put it, “instead of around your work.”

That sounds great. But actual work-life balance — the kind that comes with health care and the ability to someday retire — should be for everyone, not just programmers and web designers. The bargaining power that comes from something as old-fashioned as a union or something as seemingly radical as Universal Basic Income would liberate workers to ask for more. Not more money, necessarily. But genuine flexibility to make work secondary.

If the future of work is flexibility, our challenge now is to make sure that future doesn’t just worsen the ever-widening divide in American society between those promised a new vision of the good, balanced life, and those for whom “flexibility” means effacing your wants and needs and dreams, once again, to the fickle demands of your employer.
 

David Goldsmith

All Powerful Moderator
Staff member

Manhattan office availability hits record high
Total leasing volume in 2020 declined by 56% compared to 2019

The office market in Manhattan finished out a bleak year with an even bleaker quarter.
Manhattan’s office availability in the fourth quarter hit a record high of 14.3 percent. That’s 16.3 percent higher than it was in the third quarter, and up 43 percent compared to a year ago, according to Colliers International’s latest market report.

A big chunk of that — 24.2 percent — was sublet inventory, which expanded by 6.45 million square feet in the past year.

Overall, the pandemic left a large scar in Manhattan’s office market in 2020, reducing the annual leasing volume to 18.9 million square feet, down by 56 percent from a year ago.
As companies deal with both a devastating economic downturn and grave uncertainty about their future office needs, leasing activity has dramatically declined. In the fourth quarter, only 4.2 million square feet was leased — down by a whopping 68.4 percent compared to the same period last year.

The average asking rent in the fourth quarter was $74.39 per square foot, a decrease of 3.5 percent compared to the third quarter, and down 5.6 percent from a year ago.

The severe impact from the pandemic was visible in all market indicators, said Franklin Wallach, Colliers’ senior managing director for New York research. But “value-seeking tenants” found some opportunities, he said.
Major leases signed during the fourth quarter included NYU Langone’s 633,000-square-foot renewal at Vornado Realty Trust’s One Park Avenue; Justworks’ 270,000-square-foot renewal at 55 Water Street; the City of New York’s 157,000-square-foot renewal at AmTrust’s 250 Broadway; the Travelers’ 133,000-square-foot renewal at SL Green’s 485 Lexington Avenue; and Apple’s 117,000-square-foot expansion at Vornado’s Penn 11.

The office investment sales sector was also affected by the pandemic, with a fewer number of deals made in the fourth quarter compared to a year ago. But the top deal — SL Green and Kaufman Organization’s sale of 410 Tenth Avenue for $952.8 million to 601W Companies — made a big splash. Total sales in the fourth quarter was $1.15 billion, down by 62 percent compared to a year ago.

Peter Nicoletti, Colliers’ managing director and head of New York City capital markets, said that in 2021, “we anticipate more activity, especially around well-leased assets and those that are significantly impared.”
 

David Goldsmith

All Powerful Moderator
Staff member
www.newyorker.com/magazine/2021/02/01/has-the-pandemic-transformed-the-office-forever/

Has the Pandemic Transformed the Office Forever?​

Companies are figuring out how to balance what appears to be a lasting shift toward remote work with the value of the physical workplace.

David Corns, the California managing director of R/GA, a global advertising and marketing agency, needed to decide whether to renew the lease on the company’s office in downtown San Francisco. It was spring, 2020, and the lease was set to expire on August 31st. Before the covid-19 pandemic, commercial real estate was pricier in San Francisco than it was anywhere else in the country, including New York, where R/GA has its headquarters. Since leaving the office on March 13th, the hundred-person S.F. staff—the creatives, designers, strategists, account execs, and technologists who make digital products and services for Slack, Reddit, and Airbnb, among many other brands, along with support teams—had been working from home. “We have seen productivity go through the roof,” Corns told me. So why did the staff require so much expensive office space? Did they need any at all?
In the past three decades, a series of quiet revolutions in design have changed the way offices are used, erasing former hierarchies of walls and cubicles and incorporating workplace methodologies from the technology industry into team-based, open-plan layouts. At the same time, digital tools such as e-mail, Excel, Google Docs, video conferencing, virtual whiteboarding, and chat channels like Slack have made a worker’s presence in those offices less essential. The pandemic has collapsed these divergent trends into an existential question: What’s an office for? Is it a place for newbies to learn from experienced colleagues? A way for bosses to oversee shirkers? A platform for collaboration? A source of friends and social life? A respite from the family? A reason to leave the house? It turns out that work, which is what the office was supposed to be for, is possible to do from somewhere else.

The pandemic has presented R/GA and countless other large enterprises with an unprecedented opportunity to rethink the importance of presence, proximity, and place in workspace planning. Twenty-seven per cent of the American workforce will be remote in 2021, according to a recent survey by Upwork, a freelancing marketplace. About twenty million workers have moved—many of them out of major cities—or are planning to. Office vacancies continue to rise: CBRE, the world’s largest commercial-real-estate-services firm, recently estimated a San Francisco vacancy rate of more than sixteen per cent, the highest on record. Major real-estate companies such as Boston Properties and Vornado Realty Trust, which, owing to long-term commercial leases, have traditionally been recession-proof, have lost more than a third of their stock-market value in the past year. Managers—and workers—are struggling to figure out what their post-pandemic offices will look like, and how to balance what appears to be a lasting shift toward remote work with the advantages of the physical workplace.

Before the pandemic, the physical and virtual workspaces often seemed to be at odds. The digital resources that now allow many workers to do their jobs from home had made it possible to come into the office and spend all day online. Although these tools claim to enhance the physical workspace by improving communication, they can undermine office culture by reducing the face-to-face encounters that open-plan layouts purport to promote.
“Digital technology should not be a substitute for human connection,” Microsoft’s C.E.O., Satya Nadella, told me. (It is sometimes, of course, used for precisely that reason in open-plan offices—you can’t concentrate on your own work if someone next to you is talking, and there are few spaces in which to speak privately with a colleague.) “Digital technology should help human connection when there are constraints of space and time,” Nadella added.
Corns discussed options with R/GA executives in New York, including Sean Lyons, the C.E.O.; Wes Harris, the global C.O.O.; and David Boehm, who oversees the company’s real estate and facilities. The New York executives also had to decide what to do about the company’s two-hundred-thousand-square-foot Manhattan base, an office, at 450 West Thirty-third Street, that was designed by the celebrated British architecture firm Foster + Partners. The design process is depicted in Gary Hustwit’s 2016 documentary, “Workplace,” which charts the evolution of the twenty-first-century office.

R/GA’s headquarters used to be a stop on design tours of cutting-edge New York City offices. Another must-see workspace was Campari America’s office, done by Gensler, the world’s largest workplace-design firm, and situated in the Grace Building, overlooking Bryant Park. But, as the pandemic dragged on, an expensive showplace office in Manhattan, where rental costs in a Class A high-rise can amount to twenty thousand dollars per employee per year, began to seem like an albatross of costly, unused space.
In San Francisco, Corns’s decision was relatively simple: “We said, ‘Let’s pull ourselves out of this lease, go fully virtual, and treat the office like we would treat any client project, where we start from a blank slate.’ ”
During the first six months of the pandemic, R/GA’s Talent Experience Team conducted a series of surveys and workshops with the agency’s sixteen hundred employees around the world. Wes Harris told me, “The first one was just: Are you able to get any work done? Are your clients satisfied? How are you feeling?” Results were positive. Remote work was working, by and large. Thirty per cent of supervisors said that their workers were more productive at home; only seven per cent said people were getting less done. Two months into the pandemic, it seemed likely that working from home would be a permanent change, rather than a temporary stopgap.
The next set of surveys, conducted in June and July, asked, Harris said, “Now that we are successfully working in a virtual world, what should the future post-covid office look like, and how do you blend the physical and the digital in this new paradigm?” Everyone said that they missed seeing their colleagues in person, but very few workers envisaged returning to the office five days a week. One to three days was more appealing.

“People want to be able to work from anywhere, but there are times they want to collaborate,” Harris told me. Instead of a big central office like 450 West Thirty-third Street, with seating for twelve hundred and fifty employees and a two-hundred-person conference room, it might be better to have smaller satellite offices nearer to workers’ homes. Sean Lyons referenced “Dunbar’s number,” the British anthropologist Robin Dunbar’s theory, derived from studies of Neolithic villages and tribes, that humans can maintain stable social relationships with no more than a hundred and fifty people at any one time. R/GA was planning to open a hub office in Brooklyn, Lyons said, because so many of their New York people lived there.
Six months in, the final round of surveys showed that employees—driven by adrenaline and anxiety about underperforming, and because there wasn’t much else to do while sheltering in place—were working all the time.
The surveys turned up a number of “pain points,” including a lack of spontaneous interactions with colleagues, difficulty integrating new hires into company culture remotely, Zoom fatigue, and ergonomically incorrect seating. But the sorest was felt by R/GA staff who had young children. For a stressed-out parent, W.F.H. can quickly turn into W.T.F.!

But, for many of the company’s employees, fewer opportunities for collaboration and the erosion of company culture weren’t major drawbacks. A summary of the survey results reported that conducting meetings over Zoom meant “more voices are being heard and there is better meeting etiquette.” One respondent wrote, “People tend to wait for others to finish their thoughts before speaking.” Another observed, “WFH actually forces our entire team to work more closely.”
“The wind, the wind, that’s all you think about—you gotta learn to live in the moment.”

Early in the pandemic, Microsoft’s Nadella suggested in a conversation with editors of the Times that effective remote collaboration relied in part on “social capital.” The concept that communities grow out of personal interactions was popularized in Robert Putnam’s 2000 best-seller, “Bowling Alone.” In a job setting, social capital is accumulated by working in the presence of others, and depleted during virtual interactions. Nadella told the Times he was concerned that “maybe we are burning some of the social capital we built up in this phase where we are all working remote. What’s the measure for that?”

But when I spoke to Nadella he allowed that when you see people in their homes, with their noisy children and importunate pets, struggling to stay focussed and upbeat, “you have a different kind of empathy for your co-workers.”
At R/GA, the survey also revealed that, without the company’s New York headquarters, people who worked in other cities and countries felt much more involved. One worker wrote, “New York has stopped acting like it’s New York and everyone else.”
Finally, the survey asked the staff to imagine the office of the future: “More spaces for collaborating. Less individual desk space”; “Would love to see more team-oriented spaces like a table, screen, and partial privacy that a team can use and have informal meetings instead of everything requiring a conference room”; “The office can be very overwhelming and very hard to concentrate, that’s been the best part about working from home, being able to focus”; “I feel very wary of big open floor plan spaces, which have always made it easy for bugs and viruses to travel.”
In all, R/GA gathered fifty-five hundred comments from seven hundred and fifty workers. Harris and his colleagues incorporated these findings into briefs that they would share with architects and designers as the company made its post-pandemic plans, beginning with the San Francisco office. David Boehm told me that he hoped the resulting design would serve as a prototype for the R/GA office of the future.
In August, Corns took out a lease on a new, smaller space in a high-rise on Fremont Street, in San Francisco’s financial district, at a much lower rent. “We had talked about getting three smaller spaces—in South Bay, Oakland, San Francisco—to cut people’s commute times,” he told me. “I thought we would actually go that route, but people said, ‘We want to be together.’ ”
Corns then sought out a designer to help create a workspace. After a brief search, he chose Primo Orpilla, a principal and co-founder of Studio O+A, an award-winning San Francisco-based architecture and design firm with three decades of experience creating workspaces for companies such as Facebook, Uber, and Yelp, some of them also clients of R/GA.
If you entered office life in the eighties, as I did, hierarchy was everywhere you looked. Bosses and other big shots had walled offices with views, while small fry toiled in cubicle reefs, bathed in fluorescent light. The industrial open-office setting where C. C. Baxter labors in Billy Wilder’s 1960 film, “The Apartment,” a kind of white-collar factory, gave way to the cube farm where Lester Burnham sits in “American Beauty,” from 1999. Conformity still reigned in the cubicle era, but at least an office schnook had partial visual privacy on three sides. (For sound privacy, you needed an office.) Although they are now derided, cubicles held their charms; I met and courted my wife in one. However, like Bud Baxter, my dream was to have a door with my name on it.
The cubicle evolved out of utopian notions of office flexibility and flow that were promoted in the sixties by Robert Propst, the head of research for the Herman Miller company. Propst grasped that office work was fundamentally different from factory work. Nikil Saval, in his 2014 book, “Cubed: A Secret History of the Workplace” (2014), writes, “Propst was among the first designers to argue that office work was mental work and that mental effort was tied to environmental enhancement of one’s physical properties.” Propst believed that, in particular, knowledge workers—a term coined by Peter Drucker in 1959—would benefit from what he called a “mind-oriented living space.” He sought to integrate a more dynamic concept of work into a program of hinged partitions and standing desks. The Action Office, as Propst called it, débuted in 1964. But by the mid-eighties it had evolved into the inert cubicle, and Propst was blamed for fathering it. What happened?
Propst’s action-oriented designs may or may not have increased productivity and collaboration, but they did enhance the bottom line, allowing office managers to add more employees without having to move to a bigger space. As density increased, partitions collapsed into the smallest possible footprint: the ever-shrinking cube. Two years before Propst’s death, in 2000, he told an interviewer, “The dark side of this is that not all organizations are intelligent and progressive. Lots are run by crass people who can take the same kind of equipment and create hellholes. They make little bitty cubicles and stuff people in them. Barren, rathole places.”

Not long after I had been promoted to a private office—it was closer to Jonathan Pryce’s in “Brazil” (1985) than to Tom Hanks’s in “Big” (1988)—a democratizing design spirit began to emerge out of Silicon Valley, upending settled markers of status and reshuffling personal and collaborative space according to a more communal philosophy of team-based work. Perimeter offices moved inside, so that the whole space got natural light; the boss, at least, was more accessible. Cubicle walls dropped from sixty-five inches to forty-eight, then to thirty-six, and then disappeared altogether, replaced by contiguous desks, which was my allotted space at the New Yorker office when the pandemic hit.

Like many older workers who once had offices, I hoped the pandemic might reverse the open-plan trend; people working in open offices take sixty-two per cent more sick leave, according to a 2011 Danish study. As I was to discover, the pandemic, far from reversing the decline of personal space in the office, seems likely to hasten its demise.
Growing up in the Bay Area in the seventies and eighties, Primo Orpilla got to see at first hand a new democratic design aesthetic bubbling up from the California tech scene. In the early eighties, the offices of most large tech companies were still what Orpilla calls Dilbertvilles, after the cubicle-dwelling engineer in the Scott Adams comic strip. “They were heavy, heavy hierarchical structures,” he told me—like those of Initech, the company in Mike Judge’s 1999 satire, “Office Space.” “Cubicles, offices, meeting rooms—that was it. We hadn’t had a brainstorm room yet—collaboration wasn’t even in the conversation. You just went from meeting to meeting to meeting.”
Orpilla studied interior design at San Jose State University, and, in the mid-eighties, he interned at a workplace firm in Sunnyvale, where he did space planning for the defense contractor Lockheed Martin, which was based nearby. “I got to observe engineers and how technology gets made,” he said. “There would be one superstar engineer who was the chief tech officer and the smartest guy in the room, and then a bunch of other engineers who needed guidance would form around him.” He noted how engineers would use movable whiteboards to create ad-hoc brainstorming rooms of their own. Unlike teams in hardware design, which tended to be stable and to pursue projects from beginning to end, software teams would form, dissolve, and reconfigure as the work progressed and as new, unforeseen problems arose.
Engineers were the company’s “brain trust,” Orpilla said. But “they were dealt with as second-class citizens. They took the cubes in the middle of the warehouse without windows. If you were a big sales guy, you had an office. It was all about the guys selling the product.”
By the late eighties, office managers started asking designers to facilitate this new, team-oriented style of work. “It all became about: How do we take care of the people who create this product?” Orpilla said. “They need to be inspired, they need to be fed, and we need to give them the spaces to do their work.” Free food and other amenities kept engineers in the office, coding into the night. “They work long hours, they tend to work in the dark,” Orpilla went on. “They like to hang out for long periods of time.”
The Internet boom of the nineties, which was led in part by entrepreneurial engineers, played a role in spreading the team-based methodology to other forms of knowledge work. Creating a successful digital product such as Google’s Ad Words—an invention that helped turn the money-losing search company into an advertising-driven colossus—often involves cross-disciplinary teams of engineers, marketers, and product managers. As software became the engine of growth in the tech industry, and in the economy as a whole, hard-walled barriers between formerly separate divisions of workers continued to melt away.
Orpilla and his design partner, Verda Alexander, started Studio O+A in 1991. Over the years, the amenities they provided became increasingly lavish. “We did skateboard ramps with DJ turntables, lots of game rooms with pool and ping-pong tables; we did music rooms and cafeterias with sophisticated barista bars and beer taps,” Alexander wrote in 2019, in an essay for Fast Company. Workplaces had laundry service, napping rooms, and gyms—further incentives to keep employees from leaving the office.
In the late nineties, a few businesses outside tech sought to seed similar cross-departmental innovation through open-plan design. Among the first was the advertising agency Chiat Day, whose co-founder Jay Chiat, after hiring Frank Gehry to build the company’s binocular-fronted building in Venice, Los Angeles, got rid of private offices, cubicles, and desks, making it possible to work from anywhere in the office. The Chiat Day workplace was like Propst’s Action Office after a triple espresso.

With today’s mobile technology and broadband speed, the plan might have worked, but Chiat, who died in 2002, was two decades ahead of his time. After the company moved out of the space, Wired’s 1999 postmortem noted that the Venice office had become “engulfed in petty turf wars, kindergarten-variety subterfuge, incessant griping, management bullying, employee insurrections, internal chaos, and plummeting productivity. Worst of all, there was no damn place to sit.”
Designers addressed complaints about the noise and the distractions by incorporating elements of “activity-based working,” a term coined, in 1994, by the Dutch design consultant Erik Veldhoen. Layouts featured a mixture of open areas for team-based work, “living rooms,” and “huddle spaces” meant to promote casual encounters and focussed work. Activity-based design also helped introduce “hot desking” (unassigned first-come, first-served seating), and “hoteling” (reservable desks).
Studio O+A offers prospective clients a menu of different “typologies”—semi-modular, activity-based room types that can be fitted into any open plan. These include the Think Tank (“A conceptual greenhouse in which the first sprouts of projects are nurtured”), the Library (“A place of respite”), and various Sanctuaries and yurt-like Shelters (“This ancient structure from the steppes of Mongolia is a popular modern amenity”).
Orpilla told me that O+A wanted to “create a kit of room types that suggest a certain type of behavior.” It was what made his job so interesting: “You’re changing behavior. That’s really what workplace design is about.”

In recent years, activity-based design has become a powerful tool in many companies’ branding and recruitment efforts. Gensler has specialized in creating this kind of space, and, with its design of the Campari America headquarters, which opened in March, 2019, the firm hit peak office-as-life-style. The place is intended for workers who are “living the brand every day,” Stefanie Shunk, Gensler’s lead designer on the project, told me as she showed me around the deserted workplace in early August. Desks are first-come, first-served, although Ugo Fiorenzo, the head of Campari America, admits to having a “preferred corner.” Personal items are stored in lockers; anything left behind on a desk at day’s end winds up on a “table of shame.” Fiorenzo described the aim of the design as “collaboration and collision.” There are five different bar spaces scattered around the two floors, including a speakeasy, the Boulevardier, hidden under the internal stairs. Shunk used the metaphor of the perfect cocktail to describe the interior aesthetics: “Clarity, color, aroma, flavor, and finish.” The tasting profiles of particular liquors (the company also owns Wild Turkey, Skyy Vodka, and Grand Marnier, among other brands) inform the color palettes in branded meeting rooms.
Shunk and I were joined by Jaime Celebron, Campari’s senior director of human resources, at the reception desk, designed to look like a Milanese espresso bar. Normally, “you’d kind of belly up to the bar,” Celebron said, nodding toward the white marble C-shaped counter. We were careful not to touch it.
It was Celebron’s first time back since the second week of March. “I wish you could see it with the people,” she said, looking stricken.
We followed the tour that new hires used to receive, ending up in the intimate-feeling Boulevardier. We didn’t stay long. With the pandemic, the bar felt like a covid cocktail. Living the brand was one thing; getting sick from it was another.
“You’re not listening to me.”

In the months after the March shutdown, Gensler, O+A, and many other workplace designers scrambled to put together safety protocols for clients that, like Campari, were considering a speedy return to the office. Workplaces premised on bringing teams of people closer together now had to keep them apart.
“Clients are looking to us for answers,” Amanda Carroll, a principal at Gensler, told me. The white-collar workplace has never been regulated like manufacturing, construction, and health care, sectors where the Occupational Safety and Health Administration sets health and safety rules. With the pandemic, potentially fatal hazards entered the office, as did possible liability issues for employers, but osha declined to revise its standards. David Michaels, who headed osha during the Obama Administration, told the Washington Post, in June, “Thousands of workers have complained to osha, and osha has told them they’re on their own.” The Trump Administration was focussed on slashing regulations governing businesses, not creating more of them.

Some states have issued back-to-work protocols, but in many cases it’s left to designers like Carroll and her colleagues to develop best practices concerning social distancing, surface cleaning, and air quality, and to convey these to their clients as suggested procedures. Carroll told me, “We are used to industry standards on inclusivity and diversity, but this new social responsibility around health and wellness takes it to another dimension. Plus, it’s highly personal to individuals—what their perceived level of safety is.”
The Great Fomite Freakout—a term coined by Dylan Morris, a researcher at U.C.L.A.—was in full swing in early summer, when I began joining Zoom calls with designers at O+A, Gensler, and Arup, a global engineering and design firm. At first, when the virus was thought to be conveyed mainly in droplets of moisture, surfaces were believed to be a primary medium of transmission. (A fomite is an inanimate object that can carry contagions.) Anything that workers regularly touched—railings, elevator buttons, faucets, the reception desk, the coffeepot, the water cooler—was a possible hot spot. Carroll and her colleagues collected information on the antimicrobial properties of copper versus plastic and cardboard. Designers developed “sneeze guards” and transparent barriers around open-plan workstations, making them, in effect, see-through cubicles, and leading to an acute shortage of plexiglass.
It was then discovered that, although the virus can linger on some surfaces for days, it is extremely unlikely that a person can catch it by touching those surfaces. By early August, the scientific consensus was that airborne transmission might be a greater threat than fomites. The possibility that the virus could circulate in the office’s heating-and-air-conditioning system meant that designers had to add information about clients’ H.V.A.C. systems to their portfolios of covid-related considerations. It also meant that barriers alone wouldn’t stop the virus from spreading.

The virtual meetings I sat in on were charged with a sense of high purpose, as designers on the front lines used their skills to potentially save lives. Signage was key; 2020 proved to be a golden age for graphic designers. Proposed safety signage in white-collar workplaces was greatly expanded to convey information about keeping social distance, hand washing, mask wearing, and one-way flow in “curated” elevators, lobbies, and hallways. Some signs used humor and whimsy: “hug that sneeze,” “wash your paws.” Others sought to elicit empathy for colleagues.
But, in spite of all the research and recommended interventions, the majority of offices remained almost empty; many of the signs were never deployed. By the end of November, according to the Partnership for New York City, only ten per cent of white-collar workers in Manhattan had returned to their offices, and even as people get vaccinated it seems unlikely that many employers will be bringing staffs back before the summer of 2021; Google recently pushed its return date to September, 2021.
Some enhanced hygiene and cleaning procedures may outlive the pandemic, but they are likely to be absorbed into the voluntary rating system for “healthy buildings” administered by Fitwel, the real-estate industry’s certification board, and operated by the Center for Active Design. Fitwel awards ratings to both buildings and individual workplaces based on things like access to natural light and the promotion of physical activity. Many covid-related best practices have already been incorporated into Fitwel’s downloadable Viral Response Module.
Studio O+A assembled its own covid tool kit for office safety. Then Orpilla asked the staff to develop a new set of covid-related typologies—activity-based spaces that might become standard features of a post-pandemic workplace. The Donning/Doffing Room was the top typology that emerged from a meeting I attended, in which the staff presented about a dozen ideas. This space, some version of which many other workplace firms were also proposing, would include a temperature-check station, an isolation room for people who tested hot, a place for mandatory hand washing, and lockers to store outside gear and shoes, in addition to personal items. (Thermal temperature checks are now common in those workplaces which have reopened, even as it’s become clear that they aren’t very useful at stopping the spread of covid, because so many people with the disease are asymptomatic.) Other typologies that seemed like potential keepers included the Radio Station, a room with enhanced A/V capabilities to connect with remote workers; the Boot Camp, an area for new hires; and the Rickshaw, a small, enclosed private workspace.
Orpilla sent R/GA the tool kit and the new typologies, and Corns came up with a design brief. O+A followed up with a questionnaire and a “visioning” session that added detail to the ideas outlined in the brief.
Meanwhile, in New York, Lyons and his team had decided to sublet the lower floor of R/GA’s HQ. The news was reported in The Real Deal, a real-estate magazine, in early September. The article noted that available sublet space in New York had spiked dramatically since the pandemic. The only businesses that seemed to be expanding their real-estate footprint in the city were Big Tech companies, which were also setting the standard for working from home. Amazon completed its lease agreement for the former Lord & Taylor department store, at Thirty-eighth Street and Fifth Avenue, and Facebook leased 1.5 million square feet in Hudson Yards. However, as Dror Poleg, the author of “Rethinking Real Estate” (2020) and a co-chair of the Urban Land Institute’s Technology and Innovation Council in New York, noted to me, both deals had been in process before the pandemic hit.

R/GA’s remaining floor at 450 West Thirty-third Street would become a hybrid workspace, where some employees would be physically present some of the time, working at reservable desks, but on any given day the bulk of employees would be remote. Sean Lyons, the C.E.O., envisaged people being in the office for three days a week and home for two, on average. “In the Singapore office, they want people in the office Monday and Friday, so they can begin and end the week together,” he said.
One of the pain points that the final round of R/GA surveys turned up was the fear that remote workers will lose out on opportunities that in-person workers get by virtue of proximity. Fifty-seven per cent of respondents thought that the stigma of working remotely would linger after the pandemic. “When working from home people felt others saw them as unproductive, difficult to reach, and taking an unofficial day off,” a summary found. “There is a lot of concern that when some return to the office, expectations and processes will shift back to favoring those who are physically present.”
The hybrid office sounds like a logical post-pandemic approach, and many companies are trying it, but mixing in-person and remote workers presents new challenges for managers. Ethan Bernstein, a professor at Harvard Business School who studies the workplace, told me that a hybrid setup is very hard to get right, and that he advises businesses to avoid it: “I’d say stay all virtual—hybrid is likely to deliver the worst of both worlds.” A hybrid company still has substantial real-estate costs, and it also has to contend with the potentially serious threat to company culture posed by resentful remote workers who feel that they’ve been unfairly denied plum assignments and promotions. And what about all the people who return to work to discover that they no longer have a desk, and that the sweaters and photographs and other personal items they left behind have been packed up or, worse, placed on a table of shame? As Bernstein put it, “People generally prefer a ‘home’ to a ‘hotel’—in life and at work.”
R/GA’s young and tech-savvy workers have been using tools like Zoom for years, Lyons told me, so he was not too worried about going hybrid: “We’ve always had to manage a hybrid workforce before that term was even out there. This creates an opportunity to take that a little bit further.” However, he added, “you do have to continually be open to looking for those potential divisions in the culture. We’re going to have to navigate that.”
By the time the pandemic hit, open-plan offices had become even more hated than cube farms. Well-heeled companies might be willing to spend money on activity-based typologies that offer respite from open-plan distractions, but, when times are hard and office budgets are cut, the yurt and the extra huddle space are often the first things to go. After the financial crisis of 2008, open-plan fell victim to some of the same sinister forces that cubed Propst’s workplace dreams. An open-plan layout was even easier to densify than a cubicle farm. In 2010, the average North American employer allocated two hundred square feet to each worker; by 2017, that number had shrunk to about a hundred and thirty square feet.
Workers have responded to this steady erosion of personal space by building cubicles of sound with headphones. Bound in a sonic nutshell, you can feel like a king of infinite office space, as long as you don’t look up from your screen. Since most office work takes place on virtual desktops anyway, it was easy, pre-pandemic, to perform what was essentially remote work while occupying your employer’s expensive real estate.
In “The Truth About Open Offices,” an article published in the Harvard Business Review in December, 2019, Ethan Bernstein and Ben Waber, the president of Humanyze, a workplace-analytics firm, used smartphones and sensors to track face-to-face and digital interactions at two Fortune 500 companies before and after the companies moved from cubicles to open offices. The authors wrote, “We found that face-to-face interactions dropped by roughly 70% after the firms transitioned to open offices, while electronic interactions increased to compensate.” The virtual workplace, instead of complementing the physical one, had become a refuge from it.
The technology industry gave birth to the modern office, and then created the tools to do without it. This paradox helps explain tech’s tortured history with remote work. By 2009, forty per cent of I.B.M.’s workforce was remote. The I.B.M. Smarter Workforce Institute promoted “telework” to clients as the future, claiming that remote workers “were highly engaged, more likely to consider their workplaces as innovative, happier about their job prospects and less stressed than their more traditional, office-bound colleagues.”
But in 2017, with profits falling, the company delivered an ultimatum: everyone must return to the office or leave the company. Likewise, Marissa Mayer, shortly after becoming the C.E.O. of Yahoo, in 2012, issued an edict to its twelve thousand employees banning W.F.H. Both companies cited diminished collaboration as a reason. (Mayer, a new mom at the time, built a “mother’s room” next to her office so that she could take the baby to work.) By 2016, about a third of Yahoo’s workforce had left. In 2017, Mayer herself departed the company, with two hundred and sixty million dollars.
With the onset of the pandemic, technology companies have once again become champions of remote work, while also expanding their real-estate portfolios. Facebook has said that it expects half its workforce to be remote by 2030. Twitter told its employees that they never have to return to the office. Microsoft plans to keep all but essential workers remote until this summer, but it is also proceeding with a multibillion-dollar renovation of its five-hundred-acre Redmond, Washington, campus. In August, R.E.I., the outdoor-equipment-and-clothing retailer, announced that it would not move into its four-hundred-thousand-square-foot headquarters in Bellevue, Washington. Facebook bought the complex in September for three hundred and sixty-eight million dollars. For Facebook, which has fifty-six thousand employees—more than four thousand of which were added during 2020—in eighty offices around the world, the former R.E.I. site represents a fraction of its future space needs, even if half its workers are remote in ten years.

Microsoft has traditionally had more of a wall-and-cubicle culture than younger tech businesses. The renovated Redmond digs will have fewer private offices and more team-based space. The company plans to start moving in by 2023.
Still, the pandemic has greatly accelerated Microsoft’s efforts to create a virtual office for the future. Jared Spataro, the company’s Vice-President for Modern Work, talked me through its plans, which will be designed around Teams, its conferencing software.

The PC revolution “digitized paperwork,” Spataro said. Instead of physical pages and folders sitting on a desk, office workers had digital documents and files sitting on a virtual desktop inside a computer. But these digital desktops didn’t sit inside a virtual office, one in which you easily could move around among other desktops and meet in conference rooms or common areas. There was no virtual water cooler to facilitate serendipitous encounters.
The pandemic, Spataro went on, is accelerating a “second digital transformation”: the creation of a virtual cloud-based office that connects the desktops, where employees will go to work, whether they’re present in the physical office or working remotely. It sounds like the digital version of the open-plan-office revolution—the walls around the individual’s virtual desktop are coming down. And, once again, software engineers are leading the way.
“We think every company is going to need to invest in a digital workspace for each employee,” Spataro said. He added that he was already hearing from companies that want to use the money saved by reducing their physical footprint to build a custom office in the cloud, loaded with proprietary digital whiteboarding and visual-conferencing tools, which will transcend space and time. If you want to know what happened in the virtual office last Tuesday, you can go back and replay the meetings.

Cartoon by Benjamin Schwartz
“Those spaces will very quickly become the center of gravity for work,” he went on. “We’ll use them in the kitchen, we’ll use them in transit to our jobs. Even when we move back into real estate, we won’t be back to one hundred per cent. You will come into the office, do your work, and then roll up your workspace and take it with you.”
The privacy implications of the virtual office make the lack of personal space in the open-plan office seem quaint. Each keystroke in a virtual office is trackable. In the mid-nineties, workers started to be issued key cards, which meant the company could know when you were in the building and when you weren’t. In a virtual workspace, it would know almost everything you do at work.
Spataro agreed that we will need some kind of worker bill of rights, detailing what personal information your employer owns. But, he added, that’s not Microsoft’s job: “That’s the domain of government.”
Toward the end of October, Orpilla and his staff convened a Zoom meeting with Corns and his colleagues to present O+A’s plan for R/GA’s San Francisco office. Everyone was working from home, except David Boehm, who was logging in from 450 West Thirty-third Street, where he was overseeing the remodelling of the downsized headquarters.
Dani Gelfand, a senior designer at O+A, led the group on a virtual tour of the proposed plan, beginning with the reception area. This space should “signal a feeling of safety,” she said. It featured touchless entry doors, sanitizing stations, an infrared temperature checkpoint, and an isolation room for people who register a fever. (At least in there they’ll get some privacy.)

Using her cursor, Gelfand directed us through the Donning/Doffing Room, noting the lockers for personal items. She continued through a communal pantry “employing touchless equipment where possible”—a contactless coffee machine, a touchless utensils dispenser, a pedal-operated water cooler—to a general-wellness room, which, she said, would be mainly for mothers but also for “prayer and decompression.” We followed Gelfand into the main communal workspace, which featured twenty-four-person workstations, with unassigned but reservable individual desks arranged in a pinwheel formation, and barriers between the desk surfaces that offered a modicum of visual privacy.
This part of the post-pandemic office looked much like the pre-pandemic open-plan layout, only more so. Corns, picking up on the similarity, said, “Nothing needs to look like an office before. So these workstations don’t need to be desks, per se.”
“Maybe we just have lounge furniture and a place to plug in,” Gelfand suggested.
The virtual tour then proceeded through an area with several “focus pods” that resembled three-sided restaurant booths. “The pods could be made higher, so they are more like an enclosed-booth experience,” Gelfand noted. That sounded like a cubicle, the typology that dare not speak its name.
The rest of the office was taken up with a studio for photography and digital art work, and a number of semi-enclosed conference rooms with large video screens and better sound for connecting with staff working remotely. Gelfand likened this aspect of the plan to a “communications field office.”
Boehm said that it looked like there would be a lot of traffic through the focus areas to get to the pantry and the studio. Compounding these potential distractions would be the sound of people conducting virtual meetings in the A/V areas. “Managing the sound in the office is going to be critical as we move forward,” he said.
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Everyone in the virtual meeting stared at the office plan on the screen, trying to imagine what it would be like to be on the floor physically while some co-workers were there virtually. The real office of the future, it seemed to me, lay somewhere between the physical space O+A had designed and the virtual space that we were all observing it from.
Finally, Gelfand noted there would be two private offices, as specified in the brief—one for human resources, for meetings requiring privacy, and the other for the managing director, Corns himself.
One day in December, I arranged to return to The New Yorker’s office, on the twenty-third floor of One World Trade Center, in lower Manhattan, which the staff had vacated abruptly in March. It was a gray, blustery afternoon. The downtown sidewalks, normally lively at lunchtime, were deserted, except for construction workers, who were engaged in adding office and residential space to a market glutted with it. Like a supertanker, the ship that is New York commercial real estate is hard to turn. It keeps plowing ahead, even though it has reached the edge of the known world.
The silent lobby was empty except for masked security. A Christmas tree twinkled at the far end. I was reminded of the riotous office-party scene in “The Apartment.” Remote work may increase efficiency and productivity, but a virtual office holiday party is a different thing entirely. Sitting at home, watching tipsy colleagues get flirty on a screen could bankrupt one’s social capital.

The opening of King Vidor’s silent film “The Crowd,” from 1928, shows us the busy New York harbor, followed by the streets and sidewalks of midtown, teeming with people and traffic. Then the camera swoops in through a high window, and glides over a sea of identical desks in a vast, factory-style open office, until it stops at a single desk with a name engraved on a small metal plaque—John Sims, the film’s Everyman hero. In the ninety-second sequence, the crowded city has shrunk in scale, becoming only as big as one man at his desk.
As far as I could tell, I was the only soul in our Gensler-designed office. Post-it reminders from March were curling at the edges. The silence felt oppressive.
Following the new one-way directional signage, I eventually came to my desk. I booted up my virtual desktop, thinking I might take advantage of the rare quiet and privacy to actually do some work in the office. But I couldn’t concentrate. I missed my colleagues. Whether walled, open, or cloud-based, an office is about the people who work there. Without the people, the office is an empty shell.
 

David Goldsmith

All Powerful Moderator
Staff member
Tishman Speyer’s half-empty Hudson Yards tower tops out

Pfizer is largest tenant so far at The Spiral​


The Spiral, Tishman Speyer’s 1,041-foot-tall tower across from the Hudson Yards megaproject, is getting closer to completion.
The 2.85-million-square-foot office building at 66 Hudson Boulevard, between 34th and 35th streets, recently marked its topping out, the New York Post reported. It’s expected to be completed in the third quarter of 2022.
But finding tenants to fill the building is slow going in the pandemic-battered office market. Nearly 50 percent of the space in the Bjarke Ingels-designed skyscraper has not yet been leased, according to the publication.

Leasing at the skyscraper was off to a good start in 2018, when the pharmaceutical giant Pfizer inked 800,000 square feet as an anchor tenant. AllianceBernstein and Debevoise & Plimpton LLP soon followed.

Rob Speyer, the company’s CEO, took a bullish perspective on the dearth of leasing activity.
“We’re over 50 percent leased, and we have more than a year and a half to deliver,” Speyer told the Post. “We have several conversations going with companies that are broadly representative of the city’s commerce.” He also noted that there may be “pent-up demand” for office space after the pandemic is under control.

Once the Spiral is completed, Pfizer — which was among the first companies to develop and distribute a Covid-19 vaccine — will move into its new digs from several old buildings on East 42nd Street.
 

David Goldsmith

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Manhattan Office Supply Hits Record High With Skyscrapers Empty​


There’s a record amount of office space available in Manhattan.

Leasing fell by nearly 47% from the same period last year. That came even as asking rents dipped for the seventh straight month to $73.65 a square foot on average, the lowest in almost three years.

Manhattan’s office supply has surged since March, when the pandemic emptied out skyscrapers and companies turned to remote working. Efforts to bring employees back to offices have been hampered by rising Covid-19 cases.

While many companies are reassessing their need for office space in a bid to cut costs, there are signs of life in the market. Leasing in Manhattan reached 1.9 million square feet (about 176,500 square meters) in January, the highest level since July, and 20% higher than the 2020 monthly average.

The January numbers were pushed higher by a handful of large leases, including Beam Suntory taking nearly 100,000 square feet at 11 Madison Ave.
With workers stuck at home, the office availability rate rose to 14.9% in January, the highest in data going back to 2000, according to a report by Colliers International.
 

John Walkup

Talking Manhattan on UrbanDigs.com
Anyone know what commercial brokers are telling their clients? TIme for bottom fishing? Or are potential tenants still too risk-averse?
 

David Goldsmith

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Aby Rosen is telling companies they are being too lenient and they should be threatening their employees if they don't come back to the office immediately.
 

David Goldsmith

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Staff member

Manhattan office condo prices declined 32% in 2020​

Slow year ended with just 30 sales, but activity picked up in January​


The pandemic did some major damage to Manhattan’s office condominium market.
A comparison of sales during the pandemic to pre-Covid deals in the same buildings showed a 32 percent drop in price per square foot, from $909 to $616, according to an analysis by Rudder Property Group.

Bargain hunters have begun to see opportunity and some are taking action, said Michael Rudder, the principal of the firm, a commercial real estate brokerage specializing in office condos in the metropolitan area.

“We have signed more contracts and have more closings in the first quarter of 2021 than we did in all of 2020,” he said Wednesday. “So there will be an increase in sales, but pricing is still low.”
Only 13 sales were completed in the second half of 2020 and just 30 for the year — 10 fewer than the five-year average, according to Rudder’s market report.

The second-half sales were of much larger units, on average. In total, 194,255 square feet of office condos were sold from July to December, about twice as much as in the first half of the year, but a third less than in the second half of 2019.
The dollar volume in the second half was about $140 million, up 73 percent from the first half of the year but down 46 percent from the year-ago period.

Notable sales during the second half of 2020 included Rafael Viñoly Architects’ $35.8 million purchase of 36,550 square feet at 375 Pearl Street from Sabey Corporation, and American Guild of Musical Artists’ $7.5 million purchase of 9,476 square feet at 305 Seventh Avenue from Sheltering Arms Children and Family Services.
 

David Goldsmith

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But the commute is still great: US office occupancy at just 22%

Across 10 major metros, numbers are falling; NY and Chicago among lowest​


Office buildings across the U.S. are still pretty empty.
In 10 major metropolitan cities, the average number of office workers who returned to their desks fell to 21.7 percent on Jan. 20, according to a new report by Kastle Systems International. Many companies are still taking a wait-and-see approach as coronavirus vaccinations continue their slow pace. American Express this week told workers to operate from home until Labor Day.

In New York, occupancy fell to 12.9 on Jan. 20, from 14 percent the week before, the Kastle study found. Meanwhile, Manhattan’s office availability in the fourth quarter hit a record high of 14.3 percent, according to a recent report from Colliers International.
In Chicago, which is suffering its own office market cataclysm, Kastle found that occupancy had dipped to 16.7 percent, from 18.5 percent the week before.

The lowest total of the 10 was in Washington, D.C., where just 10.2 percent of office buildings were occupied for the week of Jan. 20. That was a 9.5 percent fall from the 19.7 percent form the previous week.
Kastle calculated the percentages based on key fob and app access data compiled from employees in 2,681 buildings across 138 cities.
The situation was better in Texas. In Dallas, Houston and Austin, occupancy hit between 32 and 35 percent, making those the top three of the 10.
Still, all 9 of the 10 cities saw declines in occupancy from the previous week. The outlier was Los Angeles, which remained even at 26.4 percent.
The other three cities were Philadelphia, San Francisco and San Jose, California.

All is not lost, at least not for the workers. Some employees have cited working better from home. According to a survey from Edelman, 1 in 3 remote workers said they experienced an enhanced work-life balance.
In New York, real estate leaders, despite pushing for the return to the office, have admitted that there’s a long road ahead before things return to normal — or a new normal.
 

David Goldsmith

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Is the Office Dead Forever? Studies Suggest Working From Home Is the Way of the Future​

Eighty percent of U.S. workers said they're just as productive or more productive working from home.​

The pandemic is forcing a sea change in how business leaders view the traditional work environment. It's also raising the argument about where we will end up working post-pandemic.
Consider this recent declaration from Salesforce. In his Feb. 9 blog post, Brent Hyder, Salesforce president and chief people officer, wrote: "As we enter a new year, we must continue to go forward with agility, creativity and a beginner's mind--and that includes how we cultivate our culture. An immersive workspace is no longer limited to a desk in our Towers; the 9-to-5 workday is dead; and the employee experience is about more than ping-pong tables and snacks."

Salesforce will offer its employees flextime, fully remote, and in-office options. However, not all executives are on board with the concept of a distributed or hybrid work environment. Last month, at a virtual panel held during the World Economic Forum, two executives from major financial institutions said that working at home is losing its effectiveness.
Jes Staley, chief executive at Barclays, argued that working from home is "working as well as it is, but I don't think it's sustainable." Echoing that sentiment, Mary Erdoes, chief executive at J.P. Morgan Asset & Wealth Management, stated that employees' ability to focus "is fraying. It is hard. It takes a lot of inner strength and sustainability every single day to continue to focus and to not have the energy you get from being around other people."

The other side of the WFH coin.​

But according to Thomas Moran, chief strategy officer at Prodoscore, which provides employee visibility and productivity intelligence software, year-over-year surveys demonstrate that working from home is not only sustainable, it also delivers increased productivity.

"We analyzed over 105 million data points collected from 30,000 U.S.-based Prodoscore users, revealing a 5 percent increase in productivity year over year, challenging the assumption by business leaders that employees working from home are less productive than when working on-site in an office," said Moran.
Adrian Reece, principal statistical consultant and member of the Prodoscore Research Council, added that workers in 2021 are looking to improve on their work autonomy and not have their freedoms regressed back into an office. "Research prior to the pandemic demonstrates the positive impact working from home has on an employee's job satisfaction; research during the pandemic has shown people are more productive at home than they were in the office. Hybrid in-person/telecommuting models are here to stay and represent the new frontier in work engagement and performance management research," said Reece.
To this point, Moran added, "Knowledge-based workers do not need to sit in a specific physical location in order to produce quality work. Done well, with companies investing in technologies to support the distributed structure, productivity is greatly enhanced."

Remote work productivity trends.​

Increases in productivity from remote workers is not a 2020 trend, as noted in this 2013 study of a WFH experiment at CTrip, a 16,000-employee, NASDAQ-listed Chinese travel agency.
CTrip tracked its call center employees who had volunteered to work from home, finding a 13 percent increase in their productivity. At the time of this study, only 10 percent of U.S. employees were working from home, compared to 42 percent during the height of the pandemic.

In Prodoscore's 2020 survey of 1,000 U.S.-based workers, 80 percent said they're just as productive or more productive from home, and 91 percent appreciate the flexibility to manage their own schedules. "We're learning more about how employees can be most productive on their own terms," said Moran.
Working from anywhere demands consideration of an asynchronous schedule, allowing contributions from the workforce during the hours when individuals can be most productive. Variance, flexibility, intentional change to process, enabling collaboration from different associates at different times--all require a new management style.
Moran acknowledged that a high-performing remote workforce needs some tender loving care from management. "It requires support, flexibility, and good coaching," he said.
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David Goldsmith

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Big companies delay returning to offices — again​

Some aiming for Labor Day return, but others have stopped all efforts​


What’s the point of setting a deadline you’ll know you’ll miss? That seems to be the prevailing attitude in some C-suites when it comes to getting employees back in offices.
Some major companies, such as Alphabet and Grant Thornton LLP, have said employees will return to the office on Labor Day or at the end of the summer, but other firms have simply stopped making plans, according to the Wall Street Journal.

Among the companies that have recently announced that work-from-home is here to stay forever are Salesforce, whose president recently declared that the “9-to-5 workday is dead,” and Spotify, which will implement a “work from anywhere” policy for its employees. Other major employers — including Zillow, Twitter and Dropbox — had already enacted similar policies.

Elizabeth Mygatt at McKinsey & Co. said that she’s seeing an increased hesitancy among companies to announce return dates.

“Everyone’s in the moment of limbo,” she told the publication. “They want certainty, but they know they can’t have it.”
A survey of 2,200 U.S workers found that 44 percent of respondents didn’t know what their companies’ plans to return to the office were, up from 37 percent in September.
With the rollout of the vaccine progressing more slowly than expected, new strains of the virus emerging and schools remaining remote, companies and employees are tempering their expectations of returning to normal this year.

In October, only about 10 percent of office workers in Manhattan returned to their desks, though some companies reported occupancy as high as 20 percent. But the number of employees reporting to their offices dropped again in the holiday season as infection rates began to rise.
 

David Goldsmith

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Manhattan’s ‘trophy’ office buildings are begging for tenants​


Several new “trophy” office buildings are either searching for renters or about to become available — including 50 Hudson Yards (left), which has 807,000 square feet up for grabs, and the Spiral (right), which needs to fill 1.2 million square feet — leading some to fear an oversaturated market as the pandemic continues to keep workers at home and overall Manhattan availability hits 15 percent. But developers are banking on tenants’ lasting desire for state-of-the-art options.

Several new "trophy" office buildings are either searching for renters or about to become available -- including 50 Hudson Yards (left), which still has 500,000 square feet up for grabs, and the Spiral (right), which needs to fill 1.2 million square feet -- leading some to fear an oversaturated market as the pandemic continues to keep workers at home and overall Manhattan availability hits 15 percent. But developers are banking on tenants' lasting desire for state-of-the-art options.

The dreaded “G-word” — as in glut — overhangs nearly 8 million square feet of space up for grabs in “trophy” office buildings that just opened or are set to open by the end of 2022.
The tally we did with help from CBRE means nearly three Empire State Buildings’ worth of Manhattan’s most expensive floors have yet to be claimed during the worst leasing crisis in the city’s history.

Overall Manhattan availability has leapt to 15 percent from 11 percent since early last year. Physical occupancy is a mere 15 percent as employees continue to work from home.
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Glamorous, “starchitect”-designed additions to the skyline set the tone for the entire city. A load of unleased space at them would shadow the market for years as did over-built Times Square in the 1980s.
But the coming wave of new offices, where most rents will top $100 per square foot, might be timed just right for companies that increasingly gravitate to state-of-the-art products. Tenants like Pfizer, Skadden Arps and Time Warner could have saved a lot of money at cheaper, older locations but preferred to pay more for amenities at their new Hudson Yards-area homes.

Developers boast about their signed early commitments, such as Pfizer’s 800,000 square feet at The Spiral. But pandemic-battered builders must still find takers for jumbo blocks at their new skyscrapers. The largest available blocks are 1.4 million square feet at Brookfield’s Two Manhattan West, 1.2 million sf at Tishman Speyer’s Spiral and 500,000 square feet at Related’s 50 Hudson Yards after pre-leasing 75 percent of the tower.
Immediate or imminent large availabilities also exist at works-in-progress 550 Madison Ave. and 660 Fifth Ave., both undergoing major redesigns, and at older properties like Three and Five Times Square which will be virtually new following top-to-bottom upgrades.
Gloom-mongers call every short-term surplus a “glut.” But brokers’ rosy forecasts can’t be entirely trusted either. Their argument that 7 million square feet are a minute fraction of Manhattan’s 440 million square-foot inventory is little comfort to a landlord with a half-million vacant square feet and lenders breathing down his neck.

Although demand is weak, one possible suitor for a Manhattan base is much-in-the-news Robinhood, which the Real Deal reported is interested in 60,000 square feet. The day-trading shop might well be drawn to the bells-and-whistles — and prestige — of a brand new building.
For perspective, we went to analysts with neither agendas to promote nor axes to grind.
Real Capital Analytics senior vice president Jim Costello noted that “Is Manhattan dead?” scenarios overlook the “long term.”
“People have been talking about the death of cities since the Black Death,” Costello said. What can’t be accomplished via Zoom — meeting new clients and business partners and creative collaboration — “are what cities make easy. I believe those features don’t go away.
“At some point, demand comes back. But at the same pace? That’s the big unknown. If it takes longer, then maybe some developers don’t have the wherewithal to get through it.”

Online research and operating platform VTS, which does extensive research to support its mission as a marketing tool for commercial real estate professionals, found a bright side.
Its VODI (VTS Office Demand Index), while noting that “demand [is] still 74 percent down from pre-COVID-19 levels,” cited better tidings for new projects. The index — which counts “tire-kicking” tours by prospective tenants — said, “Leasing demand in New York City has shifted towards Trophy and Class A office space and away from Class B properties post-COVID-19.
“Tours of Class A and Trophy spaces are taking up more than their typical share in the market at 69 percent in the last quarter of 2020, signaling the financial strength of tenants still active in the market.”
That means that firms are chasing advanced technological, sustainability and environmental features that exist primarily at buildings such as Two Manhattan West and The Spiral.

 

David Goldsmith

All Powerful Moderator
Staff member

HSBC plans to nearly halve office space over long term​

HSBC plans to nearly halve its office space globally over the long term as part of a cost-cutting drive set out on Tuesday, in a further sign the pandemic could mean permanent changes to working patterns.

HSBC aims to cut its office footprint by 40% over the long-term, the bank said in an analyst presentation accompanying its full-year results.

The bank's CEO Noel Quinn said the reduction would come from axing office buildings as their leases come to an end and would not include branches or HSBC's headquarters building in London's Canary Wharf.
Retained buildings will be used more flexibly, Quinn said.

"We are focused on those offices with support functions and head office activities when we talk about the 40% reduction," Quinn said.

"We believe we'll achieve it via a very different style of working post-COVID with a more hybrid model.

"Take London, for example, we will have the building at Canary Wharf, this will be the primary office but the nature of working in the office will change."

The UK government said on Monday that home working should continue until further notice as it plotted a gradual easing of the country's lockdown, meaning company offices will remain largely empty for months.

Several banks have said they will adopt more hybrid working after most of their staff switched to working from home in the pandemic, but few have spelled out a specific target for reducing space.

HSBC's Asia-focused rival Standard Chartered moved to permanent flexible working in November, later signing an agreement with flexible workspace provider IWG.

Executives at some banks including Barclays and JPMorgan have cooled on the idea of widescale remote working, arguing over the longer term it is taking a toll on staff wellbeing and proving less effective.

HSBC unveiled a revised strategy focused mainly on wealth management in Asia after the pandemic saw its annual profits drop sharply.
 

David Goldsmith

All Powerful Moderator
Staff member

The High-Tech Upgrades of the Pandemic Office Are Mostly for Show​

When New Yorkers return to the office, possibly as soon as this summer, nothing will be the same. In an attempt to get tenants back to their desks sooner, everything is being reimagined — from redesigning open-floor offices for flexible (and spaced-out) layouts to filling offices with air-purifying plants.
When employees go back to offices at 345 Park Avenue, 3 Times Square, or 80 Pine Street — all of which are owned by Rudin Management — they will be able to check an app to see how many people are waiting for an elevator in the lobby or to monitor their building’s air quality. A vending machine offering at-home COVID-19 tests for $119 a pop (including one that provides results in 15 minutes) is now up and running in the lobby of 225 West 34th Street. And at RAL Companies’ soon-to-be-completed 124 East 14th Street property, the bathrooms are individual tiled rooms with minimal grout lines, a feature that is supposed to reduce germs. In other buildings, UV lights in common areas, thermal scanners in lobbies, and smartphone key fobs for opening doors promise to increase safety and hygiene.
Unfortunately, it’s mostly for show, especially since none of these features reduce the transmission of COVID-19 through the primary way it spreads: the air. “A lot of what people are trying to do is to put control measures in place to give the illusion of safety,” said Robyn Gershon, an occupational- and environmental-health researcher and professor of epidemiology at NYU’s School of Global Public Health. “They’re based on our best knowledge, but it’s not for sure that these things can make any difference.”

Precautions that are actually effective — on top of doubling up on face masks and maintaining social distance — include beefing up building ventilation, installing better filtration systems, and staggering shifts for employees to reduce the number of people in an office at any given time. Joseph Allen, assistant professor of exposure-assessment science at the Harvard T.H. Chan School of Public Health, has advocated for a strategy known in public health as the hierarchy of controls, which offers an inverted pyramid of five core principles to protect workers, beginning with the elimination of exposure at the top (anyone who can be working from home should) and ends with plenty of personal protective equipment. The U.S. Green Building Council, and similar organizations, has piloted new credit programs meant to help buildings reduce the risk of transmission by enhancing air-quality systems and creating cleaning policies that utilize certain products.
That’s decidedly less flashy than, say, an app, if not outright invisible. Not being able to show workers that buildings are being kept safe has led to management at buildings doubling down on deep cleanings. “We’re spending too many resources focused on shared surfaces and not shared air,” said Allen. But it may be hard for institutions to ease up on extensive surface cleanings when people want to see their office buildings being power-washed and scrubbed with antimicrobial solutions on the regular. The same goes for high-end features that give the appearance of extra protection, and there’s no harm in the psychological boost they might give, so long as they don’t lull you into a false sense of security.

“The peace of mind that it generates may have value in and of itself. I like the idea that there is a certain performative aspect to it where people can see [these things] and be reassured,” said Patrick Kachur, a public-health physician and professor at Columbia University’s Mailman School of Public Health. “I just hope people aren’t overly reassured and relax some of the other precautions that need to be in place.”

 
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